Not All is Bad News on the National Debt; but time is not on our side.

R41545Written in 2011 updated in 2018: I wrote last year a diatribe about our national debt. At that point, I saw only 3 possible solutions to our debt problem… keep in mind we were under 15 trillion a year ago… 1.) Inflate our dollar so debt is paid back in less valuable dollars. This is done by simply printing money. The more you print the less valuable the dollar becomes. So a dollar worth $1.00 today, could be equal to $0.30 in 5 years. Now you have cut your debt in “real terms” by 66%. 2.) Go bankrupt… real simple, we just renege on our obligations. 3.) Increase taxes to pay off the debt. Not popular and soon becoming an impossible tactic as there are not enough taxpayers to tax. You can only confiscate 100% of a person’s income. And if you start doing some simple mathematics you discover we are approaching a point where taxes are going to have to rise to 70-75% of everyone’s income.

Update 2018: Ironically our debt is above 21 trillion in 2018 up 6 trillion in a little more than 7 years. The above three solutions still are applicable to the debt situation solutions. I would add another option. 4.) Supply side economics… if we could consistently grow the economy to produce surpluses instead of debt, that could be a partial solution in addition to some of the above debt bomb measures. But frankly, our government follows no generally accepted economic practice. Our economic steering mechanisms are only two: 1.)Keynesian policy and 2.)Monetarist practice. We practice neither in reality.

Keynes’ theory of how to level out the economy was to save surpluses to smooth over recessions. Thus the economy in theory would be somewhat stable. Instead we run deficits each and every year. In good times of economic growth we deficit spend and in recessions we absurdly overspend to prop up the economy.

Monetarist theory is to use interest rates and tax cuts to manage the economy. In times of growth interest rates are increased to stave off inflation and keep the economy from going overboard. This could tilt the economy towards a recession, but if that is detected by the Federal Reserve they reduce interest rates to keep the economy steaming without inflation. The combination of interest rate adjustments and tax cuts have historically led to surpluses in the budget due to economic growth.

The Monetarist approach is closest to what the U.S. practices. But surpluses are rare despite the current strong economic growth of the Trump economy. Obama languished in mediocre economic growth. He eve suggested a new paradigm where growth was going to be less than 2% for the United States in this New World order. Well President Trump proved once again give Americans freedom to earn money and further to keep more, leads to growth. Obama had no clue. His recipe was deficit spending. Recall the 900 billion he gave away in 2009 on projects. That deficit spending which Keynes agreed could be necessary, should be modeled to grow the economy. Instead it got lost in the bureaucracy. If Obama would have given every man, woman and child in the US $2500 the economy would have exploded as people would have spent a large portion thus growing the economy. Stupidity reins supreme in Washington, but thank god for Trump’s common sense approach. It’s refreshing despite his many gaffe and misstatements of fact.